According
to on estimate Pakistan will require an estimated three billion dollars
annually for infrastructure development

From Mr. Shamim Ahmed
Rizvi,
Islamabad
Mar 29 - Apr 04, 2004

While generally appreciating the over all performance
of Pakistan economy, the representatives of various countries and donor
agencies who attended the 3-day conference of Pakistan Development Forum
(PDF) drew attention to certain bleak areas specially the water and
power sectors which may lead to ''blackouts and food shortages after a
few years''. Pledging financial support, they urged the government to
chalkout a mid-term and a long-term plans on top priority basis to avoid
these substantial threats to Pakistan economy.

There has been a general appreciation of Pakistan's
policies at the Pakistan Development Forum. However, the most generous
has been the World Bank Vice President Praful Patel, who described
Pakistan's achievement and its commitment to economic reforms by saying
''Pakistan is back in business". Many and varied were the reasons
he explained for such a comment but the most striking perhaps was that
''Pakistan pursued good choices, good economic policies and staying
powerfully with economic policies and powerfully with economic
reforms''.

Some of the donors, however, made the critical
observation that there was ''a threat of blackouts, power outages and
food shortages'' as the country needs enormously high investment of $ 20
billion, to develop these sectors and there are virtually no concrete
plans to address the mammoth challenge''.

The donors made this assessment at the exclusive
sessions on water and power sectors recently. The ministers and senior
officials made presentations on the development plans and infrastructure
needs. The donors criticized the lack of planning and a medium-term
strategy, but promised to provide resources once a satisfactory road map
is charted out.

Aftab Ahmad Khan Sherpao, Minister for Water and
Power, presented the power sector outlook in the opening session, and
accepted the scary scenario of power shortages. He said the country
faces a power deficit of 411 mega watts (MW) in 2006, which will grow to
5529 MW in 2010. The additional power generation will need an investment
of $5 billion over the next five years.

The international donors community, including all
major bilateral and multilateral donors, reckoned that the Water and
Power Development Authority () suffering from 24-25 percent line losses,
and would find it hard to attract private sector investment. "The
power sector crisis could limit the growth potential of the
economy", observed Dr. Hafiz Pasha, UN Assistant Secretary General
and Director UNDP.

The World Bank estimates that high operating losses
of the power sector consume more than 1.4 percent of GDP, which is 200
percent of the health budget and enough to pay for 2-3 million household
connections, out of the total 7 million households that need
electricity. The Bank observed high tariffs and low reliability hurts
industrial competitiveness, with outages alone costing 6 percent of
annual revenues.

The Bank estimated Rs. 400 billion investment needs
for alone over the next five years. "The private sector can play an
important role, but there will still be a funding gap — this needs to
be met through borrowing, privatization, price increases and/or
taxation. For sector survival, the tariffs have to cover the costs, the
Bank said, observing it is an inescapable reality. It maintained that
high industrial and commercial tariff undermine competitiveness, and
lifeline (50 units, category) is not well targeted. The Bank termed it a
political economy challenge. Praful Patel, Vice President of the Bank
promised to cover the full cost of first years investment plan, once a
concrete plan is ready over the next 12 months or so.

The conference of Pakistan Development Forum, which
replaces aid to Pakistan club, was a non-pledging session. Focusing on
country's new infrastructure requirement with special reference to
power, water and poverty reduction projects, the attending delegate gave
stronger indication of their full support of donor agencies to Pakistan.
Pakistan has been fortunate enough to win support in recent years, which
helped a lot in proving the macro economic indicators. But growing
unemployment and poverty level has made it doubtful for the masses. The
popular perfection, which does not accept government's. Claims-may not
hold the level of economic policies but continued to be deterring factor
for sustainability of the economic system and cannot be ignored for
long.

According to newspaper reports, in his replies to
concerns voiced by the donors on conclusion of the debate of the PDF, in
Islamabad, Finance Minister Shaukat Aziz assured them that the issues
identified by them would be resolved in due course of time. As for the
areas of their concern, it will be noted that what they said had nothing
new about it as the enlightened sections of the population had been
repeatedly warning the changing governments of these. For these
encompassed not only lacunas in implementation of the devolution plan,
but also live and living in the high-risk zone due to lack of basic
facilities, environmental degradation and high defence spending, as
undermining social spending and population growth rate. Of defence
spending, the Minister said that these have declined from 7 per cent to
3.6 per cent over ten years and including the pensions defence sector
employees it is 3.9 per cent. He assured the Forum that a balance has
been struck between social and defence spending and it would be
maintained, saying that the country's defence spending reflects its use
as deterrence.

According to on estimate Pakistan will require an
estimated three billion dollars annually for infrastructure development
and this the public sector cannot finance alone. Such huge financing has
to come largely from the private sector and the donor community. As the
focus is on investment and growth, the need for accelerated
infrastructure development has become all the more pressing. Seen in
this background, the three-day meeting of Pakistan Development Forum
heard a number of presentations on such sectors as power, water,
transport and communications outlining future projections from the
concerned ministries and departments. The occasion provided the donor
community with an opportunity to assess these requirements. The
perception is that infrastructure has to be added to the agenda of
macroeconomic stability, good governance and human development. It was
felt that any bottlenecks in infrastructure could hamper the process of
growth leaving adverse impact on poverty reduction efforts.

Infrastructure needs have to be seen in the light of
their backlog, present requirements and future projections. This sector
had not received the needed amount in annual fund allocations due to
financial constraints. However, during the last two years, the share of
infrastructure has gone up due to enhanced development spending by the
government. This will be further enlarged as additional fiscal space
becomes available in years ahead. Meanwhile, it is necessary that losses
incurred by power sector or other public sector corporations should be
minimized. It is also necessary to ensure that infrastructure projects,
which are quite often very big, are carefully designed and implemented
without any delay at any stage. The implementation of Gwadar project,
which is ahead of schedule, can serve as a good example. Such
infrastructure projects, which may be in need of repairs or improvement,
should be given high priority in next years' public sector development
programme.